Good morning, everyone, and welcome to the Inspired Entertainment's First Quarter 2022 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I'll begin today's conference call by referring you to the Company's Safe Harbor statement that appears in the first quarter 2022 earnings press release, which is also available in the Investors Section of the Company's website at www.inseinc.com, again, www.inseinc.com. This Safe Harbor statement also applies to today's conference call, as the Company's management will be making certain statements that will be considered forward-looking under the securities laws and rules of the SEC. These statements are based on management's current expectations or beliefs and are subject to risks, uncertainties, and changes in circumstances. In addition, please note that the Company will discuss both GAAP and non-GAAP financial measures. A reconciliation is included in the earnings press release. With that completed, I would now like to turn the conference call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining our first quarter earnings call. Using a hockey metaphor, I'm pleased to say that we're back now to full strength with Stewart joining Brooks and myself in speaking this morning. And not a minute too soon because there are a huge number of developments to keep track of. And when it comes to keeping track of things, they don't get any better than Stewart. As we indicated in the press release, we were pleased with our first quarter results, with consolidated EBITDA coming in nicely ahead of estimates. And all the important performance indicators are going in the right direction. In our last conference call, we talked about our digital business, the combination of Virtual Sports and Interactive, moving towards accounting for half of our overall earnings. Indeed, in the first quarter, the digital business grew 47% year-over-year to reach 48% of total EBITDA. As we have also mentioned previously, this dynamic continues to positively impact the growth rate, operating margin, and capital intensity of the overall business. Virtual Sports was the primary digital driver in the first quarter, with overall revenue growing 84% year-over-year. Despite the fact that retail virtuals returned almost to pre-COVID levels, online Virtual still recorded growth of 54%, illustrating the tremendous momentum in this business. As Brooks will discuss in a moment, virtually all this growth in the quarter was organic, coming from the existing customer base. We should also note that in the first quarter, there was no longer any COVID-related impact on live sports. Yet with a full menu of live sports betting options being available, Virtual Sports still charged ahead on this tremendous growth trajectory. This might even reinforce a point we've been making for some time that live and virtual sports might be complementary rather than competitive. Under normal circumstances, digital growth in the first quarter would have actually been still greater, and digital's overall share might already have been 50%, but as we have seen from the numbers in the press release, as against only modest Interactive revenue growth, there was about a 34% increase in Interactive operating costs. A situation that is already turning around nicely in the second quarter. During the first quarter, we invested heavily in new markets and new operators, but we introduced only about half the number of new titles as we typically do. By the end of the quarter, a handful of new titles were performing very strongly, driving revenue growth and week-by-week improvement. So the outlook for this business over the balance of the year remains very positive. As can be seen in the press release, our combined Gaming and Leisure business effectively rebounded tremendously from the COVID impact of the first quarter of 2022, with combined EBITDA swinging from a loss of $3.3 million in 2021 to positive EBITDA of $12.4 million in 2021, despite the first quarter generally being relatively weaker seasonally. At the same time, we've been very pleased with the performance of our North American machine-based business, highlighted by a very significant order from the Western Canada Lottery Corporation, which Brooks will discuss a little bit more in a minute. Elsewhere in the North American lottery world, things continue to move forward on or ahead of schedule. Revenue and profitability in our Dominican Republic retail lottery operation are running ahead of projections, and we're moving towards completing the development of the online platform, which we expect to launch in the early summer. This will not only drive incremental high-margin in the Dominican Republic, but provide us with a lottery platform having wide applicability and synergizing well with our growing lottery content capability. Finally, let me say a word about our share repurchase announcement, which we mentioned in the press release. Throughout most of my career, I have generally not been a huge advocate for share repurchases. My feeling has generally been that allocating resources to building the fundamental business itself is the key to creating longer-term shareholder value. However, we find ourselves in an interesting position right now. The fastest-growing parts of our business are also the highest margin and least capital intensive, though generating sufficient cash to fund our growth is not an issue. At the same time, given our outlook, we believe that repurchasing our shares will be very highly accretive to our shareholders, again, without compromising the need for growth capital. And with that, I will turn it over to Brooks.

Thank you, Lorne. I'm happy to go into a little more detail in each of our operating segments, and I certainly agree that our positive results in the first quarter are continuing to build strongly into the second quarter and for the second half of the year. In the Gaming segment, it was gratifying to see the recurring revenue of our retail businesses return to pre-COVID levels, with several of our key customers actually showing growth compared to pre-COVID levels. It's also important to note that we've built a significant backlog in the sales side of our gaming business, which also includes machine sales, where we've seen the success of our products in both the pub and AGC segments driving demand. Like pretty much every other business in the world, we're facing the challenges of supply chain issues and expect that our hardware sales will be a little lumpier and less predictable from a quarter-to-quarter perspective than usual because of this. However, we remain quite comfortable that over the course of this year we will deliver to our plans. As Lorne mentioned, this quarter, we saw the results of significant efforts by our team here in North America when we received an award of 720 terminals through the Western Canada Lottery Corporation. Just for a little background, we had delivered 100 terminals to them previously. Based on the performance of our products, they renewed their commitment to Inspire with the award of 100% of the available order during this procurement cycle. Frankly, that's a significant achievement by our entire team. We think this bodes well for us with other jurisdictions in Canada and North America in the future as we continue to build out this part of our business. This is also the first quarter in which we reported on our recently acquired Lottery Systems business, LEIDSA in the Dominican Republic, and their results exceeded our expectations, as Lorne mentioned. We have significant plans to build out this opportunity as we will be expanding their suite of services to include both online and mobile betting in the second half, and we expect these services to be a showcase of our capabilities in the broader lottery industry. Moving on to the Virtual Sports business, the Virtual Sports business had a record first quarter, with adjusted EBITDA almost doubling from the same period in 2021 on the strength of the growth in our online segment combined with the return of our retail business. As Lorne just mentioned, the growth came largely from existing customers, demonstrating the ability to grow this business organically over time. But we're also quite excited to have a very full pipeline of customers that we expect to go live throughout the rest of the year in a number of key geographies. Results in this segment from a limited number of customers so far in Ontario have been quite promising, and we expect it will be a strong market for us as more and more players are exposed to the product. The second half of the year will also see us go live with a new football product in Pennsylvania with the lottery, the addition of the DC Lottery, as well as the launch of some key new products like a women's soccer game in time for the Euros this summer, and our Home Run Shoot Out product with licensed players from the MLBPAA. Moving onto the Interactive or Gaming segment, where we showed modest growth compared to the prior period, but which, as Lorne discussed, is part of the staging of content beyond Q1, which is historically the lowest quarter in this segment. We're excited about some of the new games we launched in April, and we're already seeing strong performance and trends. We believe that several new markets for us in North America, including Connecticut and Ontario, will produce meaningful contributions to our growth, as well as potential licensing in Pennsylvania, which is a very big market that we're not yet live in. The combination of all of the above, as well as going live with both FanDuel and Penn National in existing markets like New Jersey and Michigan in the second half of the year, will help us have a strong second half. Moving to the Leisure segment, we saw all aspects of the business operating with no restrictions compared to Q1 of 2021 and have seen the benefits of early openings of the holiday parks, as well as increased traffic on the motorways contributing to our MSA sector performance. We're now close to 80% of our published state being digital, and we will have the whole state connected by the end of Q2, which allows us to refresh content more regularly and report more detailed analytics to our customer base, which we expect to drive yield improvements and increase cash box. Our omnichannel content strategy continues to work as intended, with several of the titles that are successful across iGaming, betting shops, pubs, and AGCs, and we'll have more titles like this being delivered to the market throughout the rest of the year. In summary, we feel very good about the progress of the business and our execution, and we see a very clear path to delivering consistent growth across each of the segments for the rest of the year. With that, I'll hand it over to Stewart to cover some of the financial performance.

Thank you, Brooks. Good morning all. First of all, I want to just say how great it is to be back. Thank you to all the extensive well-wishers, including in the last earnings call. It feels even better to see that the business really didn't skip a beat. In some way, the overall momentum seems to have accelerated while I was gone, whether that be the growth in Virtual Sports, the Western Canada terminal order, or any number of other metrics. The business really has never been in a better shape than it is today. With that in mind, it wouldn't be a quarterly call if I didn't take a little time to run through the financials in a bit of detail. I will try to keep it high level as we follow the 10-Q from last night, and also given the rolling lockdowns during the first quarter of last year, year-on-year comparables can be not terribly meaningful. Since the third quarter of 2021, we've told you that the business has operated on a regular basis, and this quarter is really more of the same. Overall, our revenue growth engines grew 66% on a reported level or grew 73% on a constant-currency basis against the same quarter a year ago. As I said, keep in mind the extensive lockdowns and operating restrictions that were in place in fiscal '21. Additionally, last year's numbers also included about related income of $3.1 million compared to $0.9 million this year. Excluding the related income, overall revenue grew 203%. Segmentally, Virtual Sports was clearly the standout at the start of the quarter, with year-on-year revenue growth of 84% on a reported basis. Just slightly higher than that on a constant-currency basis, and an approximate increase of 300 basis points in EBITDA margin. Each of our business lines performed well. One thing to note, if you read through segment-level results, including what's been mentioned in Interactive, we had two North American go-lives towards the end of the quarter, one in March and one in Ontario in April. These go-lives took up some bandwidth, which did impact the pace of content introductions during the quarter. So we don't think the headline growth we saw in the first quarter in Interactive demonstrated the practical progress made in that business. We do expect that future growth will be reflected with higher growth rates. In terms of how our revenues compared to pre-COVID levels, we saw Gaming and Leisure combined recurring revenue overall at 98%, 100%, and 104% of pre-pandemic levels in January, February, and March, respectively. We believe these results reflect that we've returned to normalcy, and the positive trajectory has continued in April, rising to 109%. It's worth noting that during the quarter, our online revenues were well over 280% of pre-COVID levels. Moving further down to the income statement, adjusted EBITDA grew 418% on a reported basis, with adjusted EBITDA margin increasing by over 1,600 basis points, continuing to reflect the operational leverage and scale we are achieving in our business. Depreciation expense declined by approximately 23% year-on-year, reflecting our reduced capital expenditure in recent years, and we seek to continue reducing capital intensity. Overall, this really was a clean closure from an income statement perspective and accounting outlook, with no warrant liability impacts, net non-accruals, and only a small below-the-line gain from the Italian VLT disposal. Following that, I can also very happily report to you that we reported positive EPS for the quarter. Turning attention to cash flows, we started the quarter with $47.8 million of cash and ended it with $40.8 million. Part of that, you'll note that $1.1 million of that decline was directly attributable to foreign exchange conversion, so on a constant currency basis, we saw a $5.9 million use of cash. However, this includes an $11.9 million build in inventory, which we don't see reflected in revenues each period and is related to timing of deliveries of both finished goods and some deliberate short-term stock-piling of component parts. We expect inventory to return to normal levels by the end of the year, or looking at it another way, we expect over the course of the year that the working capital outflow here will reverse after this increase that we experienced in cash generation during the first quarter. I would also note that the first quarter is also a seasonally high CapEx quarter. As such, certain items are payable during the first quarter, including payroll taxes and employee share liabilities from the end of last year, which incidentally had the same impact as repurchasing about 377,000 shares. Following this, as mentioned by Lorne, you will note that we announced that the board approved a share repurchase authorization yesterday. While we wouldn't comment publicly about our exact intentions with how we may use this, I think it demonstrates the confidence of the management team in the long-term outlook for the company. We will obviously report back in future periods to the extent we take action with our securities in the capital market. Once again, it's great to be back, and I am looking forward to speaking with you and seeing a number of you in the near future. With that, I will hand it back to Lorne to open up Q&A.

Thank you, Stewart. I don't have any more prepared remarks to make. So, Operator, if you could go ahead with the Q&A, please.

Yes, we will now begin the question-and-answer session. If you're using a speakerphone, please pick up your handset before pressing the keys.

What happened to saying your name?

At this time, we will pause momentarily to assemble our roster. The first question comes from Barry Jonas with Truist Securities. Please go ahead.

Hey, guys. Good morning, and Stewart, welcome back. I wanted to start by talking about the macro environment. We've heard some operators talk about starting to see some impact to the consumer from inflation or just general macro trends. I'm curious what you guys are seeing there today and any expectations going forward.

It's Lorne, and I'll tell you what I see or don't see, but then I'll hand that over to Brooks because he is a little closer to it on a day-by-day basis than I am. But I'm hearing the same things that you're saying, but at least so far, we're not seeing any meaningful impact of that in any of our businesses. If you look at, certainly, our across-the-board performance in the first quarter, there's not much to suggest that that's having an impact. We were thinking that maybe we had begun to see it a little bit in the Interactive business because, both Brooks and I mentioned, the first quarter revenue growth in our Interactive business was not overwhelming. But I think in our case, it had really - this is the business that's driven by new game introductions. That's just really what the name of the game is once you have your customer base, which we obviously do. Last couple of weeks in April, we've seen a tremendous acceleration week after week after week, so what we're seeing right now does not suggest that there is an impact of a slowdown in consumer spending. But again, in our case, it really had to do with our own game and product introduction. So we're not, and we're certainly not seeing it in Virtual Sports, and we're not seeing it in the machine businesses in the UK. Brooks, if you’re seeing something.

No. I think you covered it very well. I mean I think Stewart I'm not sure if you caught that with Stewart's response about the pre-COVID levels kind of accelerating in the gaming side of the business even more so. In our April results, where you might think that you will see the impact of inflation on the consumer in the UK and even Greece. Frankly, what we're seeing is an acceleration of the business. Who knows if that's some pent-up demand issues from COVID, some other reductions and the COVID issues that, for restrictions, into the betting shops in Greece, etc. As Lorne said, in summary, we're not seeing it.

That's really helpful. For a follow-up question, you guys have been very successful diversifying the mix of the business into digital. I'm curious, how do you think the geographical mix will shift over time, just with the majority today in the UK?

I believe it is very likely that over the next couple of years, our business will increasingly shift towards North America, including both the U.S. and Canada. We are still in the early stages of the iGaming and lottery sectors in North America, where only a few states are currently participating, yet we have already witnessed significant growth. In Ontario, for instance, Virtual Sports shows similar potential as it has in Europe. Additionally, Brooks mentioned the strong interest in our machine business in Western Canada, which has garnered attention from several other jurisdictions due to the impressive performance of our products there, leading to a sizable order that Brooks highlighted. Therefore, I anticipate that in the coming years, even without any mergers or acquisitions to boost our growth, just through organic growth and assuming the expansion of new iGaming and iLottery markets continues as we expect, we could reach a near balance between North America and Europe, close to a 50-50 split.

Thank you. That's really helpful. Appreciate it.

The next question comes from Ryan Sigdahl with Craig Hallum Capital Group. Please go ahead.

Good morning, guys. Stewart, welcome back. Glad you're doing better. I want to start on Virtual Sports. So you mentioned a lot of new upcoming game launches. Can you just remind us the cadence of past game launches and maybe what that did to the virtual business and then how the forthcoming launches you've mentioned compare to past years?

Sure. Well, probably the two most notable launches for us, and again, it plays on Lorne's last answer to Barry's question about North America focus. The football game that we launched, as well as our basketball games. So now all of a sudden, where clearly the predominant sport for us because of our exposure outside of North America is soccer. But the addition of football, basketball, and we're super excited about this baseball game that I think, Ryan, you've seen. I think at some point, particularly with the experience we're seeing in Ontario, I don't think it would be a leap of faith to think that we'll be having a hockey game as well. Generally, when you introduce these new sports, it doesn't actually cannibalize; it is generally accretive. People just tend to play more frequently with the addition of the sports, and obviously, on the online segment, where it's much easier to introduce sports, it's a big win for us. We think baseball for us will be a big product here in North America and, obviously, as we look at Latin America, we think that will also be a big product.

One thing I would add to that is when we first started in Virtual Sports, apart from an experience we had with a boxing game, we really haven't had much to do with licensing or licensed product in the Virtual Sports business. This whole sports licensing thing is something that we had phenomenal success with and phenomenal experience with back in our Scientific Games days. We had SciGames create the instant ticket sports licensing business, which for many years was probably the most important driver of growth in Scientific Games. So we had relationships with the NBA, with Major League Baseball, and so forth. At some point, we did a licensed basketball game in China that was just absolutely spectacularly successful. This is one of these things where it’s a chicken-and-egg problem because these licenses aren't cheap, and if you're not doing enough business to justify spending the money on the license, then you can't. But on the other hand, if you're not doing the licensing, it's difficult to drive the growth. So, I think we've reached that inflection point in Inspire, so in the fall we're going to be launching the football game that uses all the players from the retired NFL Players Association, which we think will be phenomenal. Now we've got, as Brooks said, the licensed baseball game. We'll have a home-run hitting contest between Babe Ruth and Reggie Jackson or whoever else we want. I think on top of all of the sports-specific things that Brooks talked about, baseball, basketball, hockey, and so forth, I personally think that we're going to get a real jolt from the addition of professional sports licensing to these games. Once that process starts, it really feeds on itself. We saw it in the lottery business, in iGames, and I am certain that we're going to see it in our Virtual Sports as well.

I appreciate that color. Just a follow-up on the licensing. Historically, Virtual has had phenomenal margins, north of 90% gross margins, close to 80% on the EBITDA margin. Given these not cheap licensing costs to use, how should we think about margins in that segment? And then secondly, how do the contracts work? Are they revenue shares or fixed costs for that licensed content?

Yes. Everything typically operates on a revenue-share basis. In the licensing industry, there is usually some form of guarantee in place. This means that if the revenue estimates are not accurate, there can be a temporary negative effect on margins since we still have to pay the fixed guaranteed licensing fees regardless of the revenues we actually generate. However, I would be very surprised if we don't see a substantial increase in revenue from football and baseball, which should offset the licensing costs.

And, Ryan, I'd like to add one more point. It's important to remember that for the licensees, Virtual Sports is a completely new area. After the initial contracts, if they prove to be very successful, we may need to pay attention to licensing fees. Right now, our focus is on explaining to the licensors what Virtual Sports is and its potential. They have invested in this with us, as Lorne mentioned, so I do not expect any margin decline in the near future.

Great. I want to switch over to Leisure. Just curious what you're seeing boots on the ground from holiday bookings and planned summer travel in the UK?

The good news is the holiday parks have opened sooner than they did last year. So we're seeing the benefit of that, and the bookings are stronger, which last year, as you remember, was a record year. The bookings are even stronger this year. So that might actually be one of the perverse benefits of inflation is that folks in the UK may decide not to take overseas vacations and may stay and go to our holiday parks. So far, the results have been outstanding.

Great. A lot of exciting things happening. Good luck, guys.

Thank you, Ryan.

The next question comes from Chad Beynon with Macquarie. Please go ahead.

Hi. Good morning, thanks for taking my question. Stewart, good to have you back. Can you talk about any supply chain bottlenecks that you're currently or expecting to see? You mentioned the inventory builds and the working capital head, but just trying to understand if you're able to fulfill all orders and if there should be an impact later on the year in margins. Thanks.

Sure. Well, I'll take the first part, and Stewart, if you want to add the second part. One of the things, as Stewart talked about in terms of inventory, is we have been aggressive, quite frankly, to meet the demand. So we've probably ordered more inventory than certainly we historically have. As I mentioned in my remarks, there are going to be a little bit more of a lumpy nature to this. We're not having problems getting product, but we certainly have some issues with delays. So how we are handling that with a sledgehammer, so to speak, is just ordered enough inventory to make sure that we have the flow of product to be able to deliver to the demand. However, as Stewart also mentioned, we certainly feel like we'll work through that over the course of the year. In terms of the margin side, sure. We're getting a very modest, probably uptick, on the container costs and shipping costs, and a little bit on the product side. But our ASP is holding pretty strong, so I don't see a real issue with margins either.

Great. Thanks. And then in terms of CapEx for the year, Stewart, I don't think you gave that. How should we think about how that starts to flow in and then how that affects how much share repurchases you're available to do in the year? Thanks.

Yes. So in terms of CapEx, you've seen the numbers in the back of the release. Just over $10 million for the quarter, and as we say, the first quarter is always the highest from capital spend, not least because it makes sense to put the new term of new equipment into holiday parks to start the year and roll them out. We've talked about on a stabilized basis, CapEx being around the $30 million mark per year. We assume that’s lower and might be slightly higher this year. There are a lot of opportunities out there and we have a lot of decisions to make in terms of whether we bring that expenditure forward so we can exploit those opportunities earlier. I’m certainly the land-based businesses, some sense with, as Lorne said, the digital businesses, and that’s much lesser there and the decision points will be made. The rolling exchange rate on pounds may actually reduce our dollar spend to some extent, but we’ll see how that plays out. I don’t think it makes a big difference in terms of what we’re thinking about in terms of share buybacks. I think in a way, I’m very confident around the long-term cash flows of the business. So, no, I don’t think it comes to that. Lorne, do you want to add anything?

Yes, thanks, Stewart. I want to reiterate a point regarding Chad's concern about CapEx affecting our share repurchase program. The answer is no. Our current cash position is strong, and we anticipate that the inventory build will decrease throughout the year, contributing positively to our cash flow. Additionally, our revolver is fully available. Considering our existing cash, the cash generated from operations, the unwinding of inventory, and the availability of the revolver, we are well-positioned to make the right decisions regarding the share repurchase.

Thank you very much. Appreciate it, and nice quarter.

Thank you.

The next question comes from Edward Engel with ROTH Capital. Please go ahead.

Hi. Thank you for taking my question. Just following up on that last one, can you just maybe remind us what your target leverage ratio is today versus, I guess, what your actual leverage stands today? And then maybe it sounded like you'd be willing to increase net debt to EBITDA alongside the buyback. Do you think that's necessary or do you think you've enough free cash flow to maintain that ratio or even decline it?

I can talk about it conceptually, and then if Stewart or Dan, who are closer to the numbers, can embellish on it. In terms of the first part of your question, we've said repeatedly that our target leverage is three. But which on a net debt basis I think is about where we are now. We've historically been comfortable letting it go up above three if we can see that the EBITDA and cash flow growth is going to quickly bring us back down to that. I don't think that we would have announced the share buyback if we weren't quite confident that we could execute it without upsetting our target of being at or below three. I think it's a very good question, and I'm glad you asked it, but the answer is I think all of these objectives are consistent with one another. Again, mainly because, as you can see in the first quarter, with so much of our growth coming from businesses that have very high margins and very little capital intensity, we're able to keep all these balls in the air at the same time. One way to think about it is the business, as Stewart said, has never been in better shape than it's in today, and we've never had more financial flexibility and a better balance sheet than we have today. As we look forward and we look at our long-term plan, we see pretty consistent improvement in that on a short, medium, and long-term basis. Even though it’s in the best shape it has ever been in today, from our standpoint, it’s only going to improve going forward. We think that gives us a lot of flexibility to opportunistically implement and execute the plan.

Great. That's helpful. And then just wanted to get a better sense of what you're seeing in Ontario. It sounds like your Virtual Sports products are a gateway to attraction, but we've heard that there might have been a little bit of a slower ramp for iGaming in the industry overall. I was just wondering what you're seeing on the ground.

Yes, that's correct. I'm pleased to report that last week was our best week in Ontario. The trend is definitely positive, but I think many of us may have underestimated the challenges of transitioning to a regulated market. Nevertheless, I believe that in the long run, Ontario will be rewarding. With a population of 13 to 14 million, there are ample gaming opportunities. The long-term outlook remains promising, though it has taken off more slowly than we had expected.

Helpful. Thanks and congrats on the quarter.

Thanks, Operator.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Lorne Weil for any closing remarks.

Thank you, Operator. I think actually Dan's comments a couple of seconds ago were the perfect closing remark. I'll simply echo it that despite the fact that the business right now is in the best shape it's ever been from every point of view because of the way we see the dynamics unfolding, we actually think it is going to consistently get better and better. Our review of the future couldn't possibly be more positive, and we're looking forward to talking to you again in three months and reporting on what we think will be tremendous progress over the next three months. Thanks for calling in, and we'll talk to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.